Duolingo Q1 2025 Earnings Report

Duolingo EPS Results

• Actual EPS: $0.72
• Consensus EPS: $0.52
• Beat/Miss: Beat by +$0.20
• One Year Ago EPS: N/A

Duolingo Revenue Results

• Actual Revenue: $230.74 million
• Expected Revenue: $223.15 million
• Beat/Miss: Beat by +$7.60 million
• YoY Revenue Growth: +37.60%

Duolingo Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 5:30PM ET

Duolingo (NASDAQ:DUOL) develops digital learning products designed to make education accessible through mobile devices and the web. Its primary product is the Duolingo language-learning platform, which offers courses in numerous languages through interactive, game-like lessons, practice exercises and personalized learning features.

The company also provides the Duolingo English Test, an online English-proficiency assessment used by educational institutions and other organizations. In addition, Duolingo has expanded beyond language learning with products such as Duolingo Math and Duolingo Music, while offering premium subscription features through plans including Super Duolingo and Duolingo Max.

Duolingo serves users internationally, with its applications and online services available across a broad range of geographies. The company was founded in 2011 by Luis von Ahn and Severin Hacker and is headquartered in Pittsburgh, Pennsylvania. Luis von Ahn serves as chief executive officer.

Duolingo Q1 2025 Earnings Call Transcript

Key Takeaways

• Duolingo reported 49% year-over-year growth in daily active users, with all regions—including mature markets—growing strongly thanks to ongoing product optimizations and viral marketing campaigns.
• The company leveraged generative AI to produce 48 new language courses in about one year (vs. 100 over 12 years), automating nearly all content creation to speed up development and reduce costs.
• Duolingo is expanding beyond language learning, soon launching chess alongside its existing math and music offerings, all monetized via its standard ad-free subscription model.
• The Duo Max tier now represents about 7% of subscribers and remains accretive to gross profit dollars, with ongoing AI-driven cost optimizations expected to improve its gross margin over time.
• For full-year 2025, Duolingo expects a ~150 bp year-over-year gross margin decline, with Q1 outperforming plan, a 50 bp sequential dip in Q2, and margin recovery through Q3/Q4 to end the year flat vs. last December.

Presentation

[Deborah Belevan, VP of Investor Relations at Duolingo]

Good evening, everyone, and welcome to Duolingo's First Quarter 2025 earnings webcast. Today, after market close, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis von Ahn, our Co-founder and CEO, and Matthew Skaruppa, our CFO. They'll begin with some brief remarks before opening the call to questions. Analysts will be able to ask a question by using the raise hand feature. Please note this event is being recorded, and all attendees are in listen-only mode. Just a reminder, we'll make forward-looking statements regarding future events and financial performance, which are subject to material risks and uncertainties. Some of these risks have been set forth in the risk factors in our filings with the SEC.

[Deborah Belevan, VP of Investor Relations at Duolingo]

These forward-looking statements are based on assumptions we believe to be reasonable as of today, and we have no obligation to update these statements as a result of new information or future events. Additionally, we will present both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results, and we encourage you to consider all measures when analyzing our performance. I will hand it over to Luis.

[Luis von Ahn, CEO at Duolingo]

Thank you, Debbie. Normally, we start this call with prepared remarks, which in this case probably would have included the term AI like 17 times. As I'm sure you've read in our shareholder letter, things are going great, so we're going to get right into questions. Shoot.

[Deborah Belevan, VP of Investor Relations at Duolingo]

All right, thanks, Luis. Now I'll pass it over to the moderator, who will begin the Q&A portion of the call.

[Moderator]

We will now move to our question and answer session. At this time, if you would like to ask a question, please click on the raise hand button, which can be found at the bottom of the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to panelist. Please accept, wait a moment, and once you have been promoted, you will hear your name called, and you may unmute your video and audio and ask your question. Analysts are only allowed one relevant follow-up from their main question. We will now pause a moment to gather the team and allow the queue to assemble. Just a moment as our first question is connecting.

[Moderator]

That will come from Curtis Nagle with Bank of America. Please unmute your audio and ask your question.

[Curtis Nagle, Analyst at Bank of America]

Terrific. Thanks for taking the question. Maybe one first for Matt and then one for Luis. Matt, could we just talk through the cadence of the gross margin for the year? Really nice outperformance on some of the Max efficiencies. I'm still expecting, you know, I think, or expecting a 50 bp beat in Q2 and then ramping up in Q2. I guess not what, you know, why not more of a benefit in the second quarter? And how should we think about kind of run rates going into next year in terms of gross margin?

[Matthew Skaruppa, CFO at Duolingo]

Thanks, Curtis. Appreciate the question. As we lay out in the shareholder letter, you know, the detailed gross margin guidance. Just to kind of reiterate what we put in there, you're absolutely right. We continue to expect for the full year about a 150 bp decline year over year. We did see Q1 come in better than we expected. We expected about a 300 bp decline, and we saw about a 200 bp decline. For the most part in Q1, Max was on plan in terms of its impact on gross margin, and we saw a slight benefit on ads, which helped.

[Matthew Skaruppa, CFO at Duolingo]

As we lay out in the shareholder letter, we do expect Q2 to sequentially, compared to Q1, decline 50 bps, and then we'll see gross margin ramp up in Q3 and Q4 such that by the end of the year, we end roughly back to where we started the year at the end of Q4 of last year.

[Curtis Nagle, Analyst at Bank of America]

Okay, awesome. That's helpful. Luis, for you, just maybe expectations in terms of, you know, the non-language modules, chess, music, math, right? Do we still sort of see these largely as tools for, you know, engagement, for streaks, adding value to existing users, or, you know, maybe increasingly so as potential monetization tools? What are your thoughts there?

[Luis von Ahn, CEO at Duolingo]

Yeah, thanks for the question, Curtis. We're very happy because we just added chess. It's not quite yet live in the app, but it's going to be live very soon. I should mention something amazing about the chess is that it really started with a team of two people, neither of whom knew how to program, so they were not programmers. They basically made prototypes and did the whole curriculum of chess by just using AI. Also, neither of them knew how to play chess. We started that for several months, and eventually, when they had a really good prototype, we had a whole team to, you know, professionalize it and put it in the app. We're very happy with it. This is, at the moment, mainly going to be to increase, you know, users who we think there's a huge demand for chess.

[Luis von Ahn, CEO at Duolingo]

are hundreds of millions of people who want to play chess. I mean, the same is true for math and music. They're just, they're growing really well. We are monetizing all of these subjects, by the way. The way you monetize them is the same way we monetize language learning, which is, you know, if you want to turn off ads, you can pay to subscribe. We are monetizing them already, but compared to language learning, they are a lot smaller. Yeah, we are very excited about it.

[Curtis Nagle, Analyst at Bank of America]

Okay, thank you.

[Moderator]

Our next question will come from Ralph Schackart with William Blair. Please unmute your audio, video, and ask your question.

[Ralph Schackart, Analyst at William Blair]

Great. Thanks for taking the question. Matt, maybe I'll start with you. Maybe kind of give us a sense of any macro softness you may or may not be seeing. I think, you know, during the 2022 timeframe, after going public, you didn't see much there, but just give us a sense there and on the DAUs, kind of, you know, how broad-based was that? Then, Luis, just on GenAI, you know, not focused on Max, but obviously you've been working with AI for a long time. Just give us a sense when you're testing now and developing products, what does GenAI allow you to do in terms of testing at scale and to develop products at scale?

[Ralph Schackart, Analyst at William Blair]

You know, how does that sort of inform your roadmap to, you know, really sort of leverage that to create, I guess, more products over time and potentially be able to roll them out faster? Thank you.

[Matthew Skaruppa, CFO at Duolingo]

Yeah, thanks, Ralph. When it comes to the broader environment, you know, you can see from our Q1 results, which were great, and the strength of our guide that we feel confident about the roadmap for 2025. We have a lot of exciting opportunities ahead of us. That is what you see in the guide. So far in Q2, you know, we've been monitoring the metrics we always monitor, and we haven't seen any real change in the trends based on, you know, any macro environment. We feel good about that. I just remind you also that, you know, we're a global business. You know, a majority of our bookings and revenue come from outside the U.S. We offer a really attractive, in my view, you know, value-to-price relationship. Our average revenue per user is in the $6 range.

[Matthew Skaruppa, CFO at Duolingo]

We feel good about it, and that's what you see in the guide, Ralph.

[Luis von Ahn, CEO at Duolingo]

In terms of GenAI, I mean, in general, GenAI is allowing us, there are three places where it's helping us. I mean, one is data creation. Teaching requires quite a bit of content. It used to be the case that, you know, a lot of this content was made by hand with some automation, but a lot of it by hand. By now, we're able to make the content for all of our subjects mostly close to 100% automatically. That allows us to just have a lot more content that is made a lot faster and much cheaper. That is one place where it's helping us. Another place where it's helping us is just creating new features that were just not possible before, like Video Call with Lily. That was just impossible to practice conversation with a computer two years ago.

[Luis von Ahn, CEO at Duolingo]

The last place is it's just helping us with efficiencies everywhere in the company. The fact that, for example, chess is a really good example, this is why I mentioned it in the last answer. The fact that two people who were not engineers really were able to get to a pretty far in chess. I mean, they didn't make the production version of chess, but what they made is really, really good prototypes. This is really, you know, this is showing what the future is going to look like. We're going to have a lot of people in the company that are playing around with new subjects or with new ideas. I think that's going to speed up the development of our features.

[Ralph Schackart, Analyst at William Blair]

Great. Thanks, Luis. Thanks, Matt.

[Moderator]

Our next question will come from Chris Kuntarich with UBS. Please unmute your video, audio, and ask your question.

[Chris Kuntarich, Analyst at UBS]

Thanks for taking the question. Maybe the first would just be on the Max side of things. Any update on retention trends for Max and just percentage of overall subs? Just how should we be thinking about kind of where Max retention is versus Super at this point? I guess my second question would really be on the 148 new language courses and just kind of pushing on that thread a little bit more here. You said it took 12 years to add the first 100. I guess, is it more, are we at the point now where we kind of reach saturation here as far as the available courses that you're looking to offer here? It's about pushing deeper into certain markets, or is there another 100 courses potentially that we should be looking here that'll be driving those, really driving the funnel here? Thanks.

[Matthew Skaruppa, CFO at Duolingo]

Yeah, so on the max retention rates, you know, we feel good about how Max is progressing. You know, it's about 7% of subscribers at quarter end, which is an impressive set of growth. You know, it helped deliver a really strong Q1 for us, and it's, you know, going well. I think on the retention rates, it's kind of as expected. You know, it's early days, but we feel confident that it's going well on the overall retention rates for Max at this point.

[Luis von Ahn, CEO at Duolingo]

Yeah, and in terms of the language courses, you know, we added 148 new language courses. All of this content was done with AI, and it really took us about a year to add these 148 language courses. Like you mentioned, the previous hundred-ish courses took us about 12 years to make. This is an incredible speed up. Now, to clarify what these courses are, these are not new languages. These are the same languages that we were teaching, but for other base languages. For example, we used to, if you were a Portuguese speaker, you could not learn Korean. Now you can. That is the type of thing. We are basically filling in all the gaps that we had. At this point, you know, we are teaching all the major languages to the majority of the countries that we serve. We are very happy with that.

[Luis von Ahn, CEO at Duolingo]

We're still going to add other languages likely, and there's demand for that, but there really is diminishing returns. I mean, in total, different languages, we only teach about 40 of them. And these 148 courses mainly pertain to about eight of our top languages that are now we're teaching in the different geographies. You know, there's not that much in terms of new courses to add, but we are going to continue improving the courses that we have and also getting them to teach to more advanced levels.

[Moderator]

Our next question will come from Bryan Smilek with JPMorgan. Please unmute your audio, video, and ask your question.

[Bryan Smilek, Analyst at JPMorgan]

Great. Thanks for taking the questions. You know, on daily active users, I mean, continue to see such strong and impressive growth rates. I believe last quarter you had talked about mature regions, you know, growing still very strong. Just curious, you know, what are you seeing on the product optimization cycle that's driving better resurrected user growth? Anything that stands out to keep in mind there? Secondarily, and kind of related as well, more on the English learning side, you know, still under indexing towards English language learning, you know, as you continue to scale course units published, add new content and efficacy over time, you know, how should we think about user growth across, you know, English language learning and the opportunity longer term? Thank you.

[Luis von Ahn, CEO at Duolingo]

Yeah, thank you, Brian. In terms of DAUs, it's a similar story to last quarter. I mean, we're getting very strong growth. I mean, we just posted a 49% year-over-year growth on DAUs, which, to remind you, that is lapping, you know, the same quarter, but the year before was doing 60% year-over-year growth. And before that, another 60% year-over-year growth. It is really growing quite fast. The growth is from all regions. Of course, some regions are growing faster than others, but really all of them are growing. The same thing is true as last time. Some of our more mature markets are actually growing the fastest. You know, we're very happy with that. What that tells us is that we really are not reaching the point of saturation in really any market.

[Luis von Ahn, CEO at Duolingo]

It is because there really are, you know, the total number of people learning a language in the world is about two billion, you know, where we just posted 130 million active users. There is a lot of room for that. In terms of what drives the growth, it is the same story as has been. Two things drive our growth. One is product improvements. The product improvements basically get improved retention of the product and also get people to tell their friends, a word of mouth. The other thing that drives our growth is our excellent marketing campaigns. I mean, this last quarter, we saw that we had this campaign where Duo faked his own death. We, you know, we could not, we did not know he was going to do that. This is a, you know, kind of quirky guy that decides to do this type of stuff.

[Luis von Ahn, CEO at Duolingo]

That campaign, for example, got 1.7 billion impressions, not dollars, 1.7 billion impressions. You know, the cost of that campaign really was essentially nothing. That is what is generating the growth. In terms of English learners, we are very excited by it. We are still under indexed, as you rightly said. If you look at language learning as a whole, 80% of the people that are learning a language are learning English, but on Duolingo, only, you know, it is a little around 50%. That percentage is increasing, which is good. Because English learners in general are growing faster than the rest of our growth, we see a lot of potential there. Just to remind everyone, the reason that English learners are now growing faster is because we have added a lot of content for them, in particular intermediate and advanced content. That is really helping us grow.

[Luis von Ahn, CEO at Duolingo]

Now, one of the things that we've said last time, and we're going to continue saying here, is it's going to take some time for this adoption to happen for English learners because the word got around. I mean, the main way Duolingo grows is through word of mouth. The word got around that we were mainly good for beginner English learners. Now that we have content for more intermediate and advanced learners, the word has to get around. We're trying to speed that up with some marketing initiatives, but generally, we expect that most of this is going to be word of mouth. You know, in some time, and I don't know what that timeframe is, but it's not months, it's probably years, we do expect that English learners are going to, you know, hopefully get to the 80%.

[Luis von Ahn, CEO at Duolingo]

You know, it's going to take some time.

[Bryan Smilek, Analyst at JPMorgan]

Awesome. Thank you. I guess just one quick follow-up on English learning. You know, could you share any insights on just overall conversion rates? I mean, right, like how that would vary versus a Western world user? Anything would be super helpful. Thank you.

[Luis von Ahn, CEO at Duolingo]

Yeah, I mean, English learners, a lot of them are in regions that do not convert very well. Some of them are in regions that convert very well. For example, Japan, Japan converts very well. If they are in low GDP per capita countries, they do not convert super well. However, we are seeing something really awesome with Duolingo Max. It is that they really have, because Max really helps you try to practice conversation a lot more, they are a lot more interested in it. We are seeing more adoption of a Video Call with Lily by English learners than non-English learners. We are also seeing that, you know, like we said, 7% of our subscribers are paying for Max. Actually, if you restrict to English learners, that number is actually higher than 7%. Non-English learners, that is lower than 7%.

[Luis von Ahn, CEO at Duolingo]

The average is 7%, but English learners, the fraction of subscribers that are English learners that are Max is higher than for non-English learners. We like that.

[Bryan Smilek, Analyst at JPMorgan]

Awesome. Thank you.

[Moderator]

Our next question comes from Justin Patterson with KeyBanc. Please unmute your audio, video, and ask your question.

[Justin Patterson, Analyst at KeyBanc]

Great. Thank you very much. It looks like cost optimizations are occurring faster than expected. You've got better line of sight on AI costs. How does that change just your desire to make Duo Max more affordable or even just provide more features to some of those English learners? Related to that, the 3D Lily update for Video Call looks pretty interesting. Talk about how you think that's going to influence both engagement with Lily and conversion rates. Thank you.

[Matthew Skaruppa, CFO at Duolingo]

I can take the first part, and you can jump in on the next one.

[Justin Patterson, Analyst at KeyBanc]

Thanks, Justin.

[Matthew Skaruppa, CFO at Duolingo]

You know, Justin, on the, you know, on the optimizations, you know, it's actually, in our opinion, trending as we expected. There were a little, there were some smaller optimizations that we were able to kind of do in Q1 that were faster than we expected, but they were pretty small. In general, the optimization of Video Call and Max is on trend with what we expected on the last call. That is good news for us because it does lead to margin expansion in the back half of the year like we thought. We also saw evidence in the first quarter that, you know, rates were coming down for those type of API calls. You know, just in general, we feel confident with the current course and speed of those optimizations.

[Luis von Ahn, CEO at Duolingo]

Yeah, and related to Max costs, I should say, it is still the case that Max in certain countries, like India, India is a good example, is too expensive. We have not lowered the price. Max in India is about $70 per year. We feel confident that over, you know, probably in a few months, we'll be able to lower that price because, you know, prices are coming down. At that point, we're going to see more adoption. It's going to take a little bit of time. That's Max. In terms of 3D Video Call, we're super excited about it. I mean, if you have actually played with it, some users already have it, not everybody has it. It's a lot more engaging. Now you can start asking Lily about her dog, which you can see it right there and everything.

[Luis von Ahn, CEO at Duolingo]

I think that's going to increase engagement. The good news about engagement is it increases a number of things. It increases word of mouth of Max itself. Basically, people are like, you should get Max. I know you're a Duolingo user, but you should get Max because, you know, you can talk to Lily. It also, of course, increases retention. It's just generally going to be good. I don't know exactly what the results are going to be of the A/B test. I mean, this is an A/B test at the moment, but we're pretty excited about it.

[Moderator]

Our next question will come from Nathan Feather with Morgan Stanley. Please unmute your audio, video, and ask your question.

[Nathan Feather, Analyst at Morgan Stanley]

Hey, everyone. Thanks so much for the question. Really encouraging results. You know, it's exciting to see the expansion in additional language courses, but, you know, given that there is the diminishing returns as you add additional languages, do you have a think your relative prioritization list for new content production now between, you know, further language courses, more advanced content, new subjects?

[Luis von Ahn, CEO at Duolingo]

Yeah, in terms of relative prioritization, I mean, we're at the moment, of course, language learning is our largest business. And it is growing very fast. So the majority of our efforts still go into that. Now, in terms of, you know, creating content there, we may not be adding new languages, but we're always improving the content for the languages that we have and, you know, making it more and more advanced. What's nice about this is because we now have this pipeline on AI, we can actually regenerate the content super fast, but in an improved manner. You'll just see us improve things a lot, you know, and it pays to do that. For example, you'll see us improve our Spanish course, which is one of our largest courses. And, you know, people all over the world will be able to learn Spanish faster.

[Luis von Ahn, CEO at Duolingo]

We are, of course, also investing in math and music and chess. We're spending less effort on that because they're much smaller businesses than language learning. But, you know, you'll see us, for example, for math, you'll see us vastly increase the content because of AI. Within the next few months, the content's probably going to quadruple that we have in math because of AI in, call it, I don't know, a quarter or so.

[Nathan Feather, Analyst at Morgan Stanley]

Very helpful. Thank you.

[Moderator]

Our next question will come from Arvind Ramnani with Piper Sandler. Please unmute your audio, video, and ask your question.

[Arvind Ramnani, Analyst at Piper Sandler]

Hi. Hey, thanks. Thanks, Luis. Thanks, Bryan.

[Luis von Ahn, CEO at Duolingo]

Good background.

[Arvind Ramnani, Analyst at Piper Sandler]

I love it too.

[Matthew Skaruppa, CFO at Duolingo]

Well done.

[Arvind Ramnani, Analyst at Piper Sandler]

I use it for all my calls, all my Zoom calls.

[Luis von Ahn, CEO at Duolingo]

Yes, I believe you.

[Arvind Ramnani, Analyst at Piper Sandler]

Look, I mean, you know, you launched Math and Music back in 2023. Now you're launching chess. And, you know, I'm really trying to better understand your business strategy. I mean, I fully appreciate that, you know, the investment costs are minimal. You know, even with Math, I believe it was with just a couple of engineers. And I appreciate that part of the equation. But also, you know, over the past couple of years, you've insisted that don't look at Math and Music and our chess is going to be free. Don't look at it as monetization lever. But there is clearly like a kind of a business strategy for expanding product. I'm just trying to get clear about your understanding of that.

[Luis von Ahn, CEO at Duolingo]

Yeah, to clarify one thing. All of our new subjects, Math, music, and chess when it launches, which is going to happen in a few days, they all have monetization. They do make us money. It is because, you know, the same subscription works for everything. You know, if you're not subscribed and you're doing Math, you have to see ads at the end of a Math lesson. You know, all the standard, you know, things that get you to subscribe will get you to subscribe. We do get subscriptions from people who are using Math or people who are using Music. Soon it will be people who are using chess. You know, they are proportional to the number of daily active users that we have in those subjects, which is significantly smaller than language learning. Now they are growing.

[Luis von Ahn, CEO at Duolingo]

The good news is these new subjects are growing a lot faster than language learning. And now they have millions of daily active users. So there is some monetization there. It is just we are not breaking it out yet. In general, the strategy is really to become, you know, not just a language learning app, but an app that teaches you subjects that take a long time to learn. These are all going to be subjects that hundreds of millions of people want to learn and that take a long time to learn. They are also good for the world. We believe that getting better at math, getting better at music, getting better at chess are all things that make people smarter and are good for the world. That is the strategy at the moment. We are very excited.

[Luis von Ahn, CEO at Duolingo]

We have known, and you are right, we have been kind of cautioning people. We know that it takes a while to grow each of these subjects. I mean, it took us, you know, 10 years to grow language learning to a big scale. It takes a while to grow these subjects. We are very happy with the growth so far for them.

[Arvind Ramnani, Analyst at Piper Sandler]

Perfect. And just a quick follow-up. What's the sort of like common theme in learners? I mean, I listened to an interview a couple of weeks back where you talked about you're looking for large markets and all of that. But is there a common thread where like the person who learns Math is also learning Music or learning? What's the common thread?

[Luis von Ahn, CEO at Duolingo]

There's definitely overlap in all of our subjects between them. You know, the general common thread is people who want to improve themselves in one way or another and who used to, probably a lot of these people used to spend all of their time on playing either mobile games or on, you know, doomscrolling on social media. Now they're spending some of that time improving themselves either by getting better at math or music or language or something. That's the common theme. There's some overlap between them. It's not 100% overlap. There are many users who only learn one thing. Quite a few users are learning, you know, multiple of our subjects, including multiple of our languages.

[Arvind Ramnani, Analyst at Piper Sandler]

Perfect. Thank you.

[Matthew Skaruppa, CFO at Duolingo]

Thanks, Arvin.

[Moderator]

Our next question comes from Wyatt Swanson with D.A. Davidson. Please unmute your audio, video, and ask your question.

[Ralph Schackart, Analyst at William Blair]

Hey, guys. Just kind of following up on chess here. Could you provide, you know, details around timeline and plans for rolling out the course to more users, devices? What point do you think it'll be widely available? You know, what are your plans around driving engagement and making it well-known that you also teach chess? Just looking out a little bit further, how do you expect it to contribute to engagement revenue, you know, 12 to 18 months or even further down the line?

[Luis von Ahn, CEO at Duolingo]

Yeah, thanks for the question. Okay, so chess. I literally, a few minutes ago, promised the product manager of the chess team that I would not give a specific date. It really is in the next, you know, next few weeks. It's like very soon. It'll be there. It'll first be on iPhones. Then soon after, it'll be on Android phones. You know, by the end of the year, this will be widely available to everybody. In terms of, you know, how we're going to get the word across, it's kind of similar to math and music. Most of it is word of mouth, but we're going to speed it up with our marketing. Certainly, you'll probably see a lot of, you know, kind of TikTok or, you know, Instagram videos of our owl mascot doing, you know, unhinged things related to chess.

[Luis von Ahn, CEO at Duolingo]

That's going to get the word out. We're probably going to, you know, we're going to test our different, we're going to point our marketing engine towards this, and including also towards Math and Music. I think we're going to, you know, we're going to see quite a bit of growth from this for these new subjects. In terms of the contribution of chess, it's similar to Math and Music. There is a business there as in already people are going to be, as soon as we launch it, people are going to be able to pay for a subscription for chess, and that removes the ads and thus all the things that a subscription does. There's going to be a contribution there. It will depend on the daily active users.

[Luis von Ahn, CEO at Duolingo]

Like I said in the previous answer, it takes time for daily active users of a given subject to grow from zero. I don't really know what the contribution is going to be in 12 months. Compared to language learning, it's probably going to be small.

[Ralph Schackart, Analyst at William Blair]

Got it. Okay, thank you, guys.

[Moderator]

Our next question will come from Edison Kai with Citi. Please unmute your audio, video, and ask your question.

[Edison Kai, Analyst at Citi]

Hi, Luis. It's great to see such a strong performance given that it's really early in China right now, but it's a very good performance. I do have one question related to marketing campaign and the market that you're diving into because last quarter you talked about how your market campaign is shifting from growing the user base into a more like to let the users know how your in-depth English content is growing. Now you are doing chess contents, which I think is another like market given that there are already mature providers like service providers like Chess.com. How do you think that your market campaigning and user base growing is going to shift from current situation given you're diving deeper into the market in both language learning and new markets like chess playing, which is more competitive?

[Edison Kai, Analyst at Citi]

I would like to know more about that.

[Luis von Ahn, CEO at Duolingo]

Yeah, thanks for the question. Okay, so our marketing, you know, what's amazing about our marketing is that it's incredibly efficient. I mean, most of our marketing efforts are, you know, social media efforts, either on TikTok or Instagram or, you know, different social media, you know, sites, including Chinese sites. We basically have a really good playbook for doing this type of marketing on social media where we don't spend very much money. The majority of our efforts are going to continue in the same way that they've been so far, which is making content that goes viral almost every single day. Some content related to Duolingo, either made by us or made by our audience, goes viral. By that, I mean it gets millions of views. That will continue, and we're not going to stop investing in that.

[Luis von Ahn, CEO at Duolingo]

Additionally, what I mentioned last quarter is if we are trying to get things like the word out that Duolingo is now good for more advanced English learners, we are probably going to do some things related to that. This includes things like influencers. That also includes things in certain geographies. For example, in Japan, where we ran a TV campaign that actually had a Video Call with Lily. You will see us do stuff like that. The majority of our efforts will continue being, you know, kind of the owl doing unhinged things. You know, when it comes to things like chess, probably the owl will do unhinged things related to chess. I think that will get the word out that we teach chess.

[Edison Kai, Analyst at Citi]

Got it. Thank you, Luis.

[Moderator]

Our next question comes from Alex Sklar with Raymond James. Please unmute your audio, video, and ask your question.

[Alex Sklar, Analyst at Raymond James]

Great. Thank you all. Luis, just starting off on packaging across your tiers, you've talked about testing, pricing, and also potentially moving some certain features across the tiers. What have you kind of learned so far this year from those tests? How are you thinking about any change in terms of new features still to come, including those in the premium version versus wanting to put them in one of the paid plans?

[Luis von Ahn, CEO at Duolingo]

Yeah, great question. I mean, you know, with packaging and pricing, it's the same story that it's always been, which is we are testing a lot of things, and we continue testing. I mean, for example, we've continued testing pricing in terms of, you know, geographically in different countries. We're testing different prices. This last quarter, we actually tested a price increase for new users and, in fact, increased the price for Super Duolingo for new users because of that. You will see us continue doing that going forward. We're always testing things. We have not moved things between packages. For example, between tiers at the moment, Max still contains Roleplay and Video Call and Explain My Answer. Super still contains what Super has been, you know, has been having this whole time. You will see us change a few things.

[Luis von Ahn, CEO at Duolingo]

I mean, not change, test a few things. I don't know what we'll end up launching. So far, nothing, no changes have launched. You'll see us doing that. It is likely that some of the Max features that are cheaper for us to give, we may bring them down to packages. For example, Explain My Answer is relatively cheap for us to do. That is not the core feature of Max. The core feature of Max is Video Call. That's a feature that's in Max. We may try it on Super or even free. We'll try that. At the moment, nothing has changed.

[Alex Sklar, Analyst at Raymond James]

Okay, great. Matt, maybe one follow-up for you. You've given some stats on annual and family plan penetration in the past. How does that mix look for your Max base versus the other Super base? Any difference in kind of annual or family plan adoption between those tiers?

[Matthew Skaruppa, CFO at Duolingo]

Yeah, sure. I think that, you know, the theory of the case for us is providing the right package to the right user at the right time and servicing that. That's primarily how we drive Max and Super and Family Plan adoption. Right now, the mix is different for Max than, I would say, annual or Family Plan. That'll evolve over time, right? It's still very early days. It's 7% of subs is Max. As we move features around and then decide how and when to surface Family Plan for Max to users, that'll evolve. It's too early to kind of hone in on what that's going to look like in the longer term.

[Alex Sklar, Analyst at Raymond James]

All right, great. Thank you both.

[Moderator]

Our next question comes from Ryan MacDonald with Needham. Please unmute your audio, video, and ask your question.

[Ryan MacDonald, Analyst at Needham]

Hi, thanks for taking my questions and congrats on a great quarter. Two questions on AI. Luis, first for you, can you talk about the level of urgency internally in terms of new generative AI features, particularly as we're seeing more funding going into the space for Gen AI and language, whether it's Speak or Preply, but also the announcement that Google has some, you know, lightweight Gen AI language learning now? Conversely, on the cost side, Matt, you know, there was this email, obviously, that you published about internally sort of this new approach in evaluation of use of AI and as we incrementally hire, you know, let's see if we can automate things first. Can you just talk about sort of how quickly that approach can translate to improve the unit economics?

[Ryan MacDonald, Analyst at Needham]

Does this change your view on the long-term sort of structural profitability of the business? Thanks.

[Luis von Ahn, CEO at Duolingo]

Yeah, thanks for the question. I mean, we're, you know, AI, we believe that AI is really transformative for our business. I think it's probably transformative for a lot of businesses. We believe AI is very transformative for our business. It helps us teach better. It helps us create content a lot faster. It helps us create content that was just infeasible to do before. I mean, a good example is we just released 148 language courses. We wouldn't have done that if it wasn't for AI. We are really going all in as a company on AI because it's a technology that particularly applies to us. You know, the main improvement in AI the last couple of years is large language models, and language is what we teach. It particularly applies to us.

[Luis von Ahn, CEO at Duolingo]

You'll see us, I mean, we really are, you know, a lot of features are being developed that are related to AI. You'll see us develop the right features for the users. You know, we really want to stay ahead with it. We believe that we're far ahead of everybody else on this. I should mention that in terms of, you know, my email to everyone, I did say that, you know, we're going to be AI first. We're going to try to automate everything. In terms of cost, we're not changing, and I'll let Matt talk a little bit about this, we're not changing our estimates because, yes, this is going to save us some costs on things that, you know, humans used to do that now AI can do.

[Luis von Ahn, CEO at Duolingo]

However, we're going to apply all of that, I mean, and many of those same people, but we're going to apply not just with people, but all of that to develop AI features. We think this is an amazing opportunity for us. The cost savings are going to be offset by the fact that we're just investing a lot in making the right features. I don't know if Matt has more to say about that, but that's how we're seeing it.

[Matthew Skaruppa, CFO at Duolingo]

No. Ryan, just to underline that last point, you know, we have done things because of AI that we would not have been able to do before. That is not taking the savings to the bottom line. That is investing in the enormous opportunity ahead of us. That is what we are going to continue to do. I think we first and foremost prioritize reinvesting to go tackle all of the opportunities. That is how we are going to use this.

[Ryan MacDonald, Analyst at Needham]

Excellent. Thanks again for the color.

[Moderator]

Our next question comes from Andrew Boone with Citizens JMP. Please unmute your audio, video, and ask your question.

[Andrew Boone, Managing Director at Citizens JMP]

Hey, guys. Thanks so much for taking the question. I wanted to ask about subscriber conversion rates. It's been a steady progression up kind of over the last four quarters, you know, call it 10 bps a quarter if you look at kind of trailing 12-month MAU. Can you speak to the incrementality of Max, though, as it affects that? Should we expect kind of that step up as you guys do start to unlock maybe what is Max in terms of a lower price or connect that metric to Max and incrementality of that subscription product? I wanted to add on to Ryan's question, right? Like Zuck just talked about this, but he talked about the unlock of what is an AI engineer that's going to be a mid-level engineer that's coming in the next kind of year. Luis, he dropped out of college.

[Andrew Boone, Managing Director at Citizens JMP]

You have a PhD, right? Help us understand your view of the AI software developer and how do we think about the efficiency of kind of your OpEx and workforce on a go-forward basis?

[Luis von Ahn, CEO at Duolingo]

Matt, you want to take the first part?

[Matthew Skaruppa, CFO at Duolingo]

Do you want to start with the second part first?

[Luis von Ahn, CEO at Duolingo]

Oh, sure. I'm happy to talk about the.

[Andrew Boone, Managing Director at Citizens JMP]

Come on, Professor.

[Luis von Ahn, CEO at Duolingo]

I mean, look, in particular for engineering, AI is getting a lot better. That is just the case. We're going to see a lot more efficiency from engineers. We're already seeing it. In terms of what it's good at and what it's bad at, I think, you know, AI coding is really good at creating something from scratch. It's not as good at taking a large code base, which is what we have on Duolingo, fully understanding it and making modifications for it. It's not as good at that. That is going to take some time to be really good at that. My sense is what's going to happen, I truly do not believe that over the next, you know, at least the foreseeable future, it's going to be the case that we're not going to need engineers.

[Luis von Ahn, CEO at Duolingo]

In fact, if you look, you know, all of these companies, even the companies that are developing, you know, the AI are hiring engineers. There is a reason for that. I think we're going to need them. We're going to need them in part because they're going to be so much more effective than they are and efficient than they are now. I think that's what's going to happen. We're just going to see them be a lot more efficient. Another thing that is really exciting is that now also non-engineers can do stuff, maybe not production code, but just kind of play around with things. One of our goals internally at the company is that, you know, 100% of our employees, and I'm not just talking about engineers, really 100% of our employees will have coded something with AI.

[Luis von Ahn, CEO at Duolingo]

We want everybody here to know how to automate things. I think just the whole workforce is going to get a lot more efficient because of that.

[Matthew Skaruppa, CFO at Duolingo]

Andrew, in that context, what was your first part of your question?

[Andrew Boone, Managing Director at Citizens JMP]

I want to focus on the incrementality of Max, right? If I think about the conversion rate of.

[Matthew Skaruppa, CFO at Duolingo]

Sorry, I was thinking about the.

[Luis von Ahn, CEO at Duolingo]

Matt was worried that he's going to have to vibe code something himself.

[Matthew Skaruppa, CFO at Duolingo]

Oh, I love vibe coding. I do it most days. When we think about the incrementality, Andrew, when we run our A/B tests for Max, you know, again, we are not optimizing for, in the very specific sense, we are not optimizing for a Max subscriber or an ARPU or this or that. We are optimizing for platform LTV. When we run our A/B tests, we have to take into account, you know, are these Max subs incremental or not in figuring out the overall impact on platform LTV. That is why we launched Max, because we ran enough of the experiment to figure out that they were incremental. There was enough incrementality to it that it was platform LTV positive. We still think that is true. In fact, we think it will become more true over time.

[Matthew Skaruppa, CFO at Duolingo]

That is really my answer to your question. Again, we are not trying to drive a Max penetration rate. We are not trying to drive a subscriber penetration rate. We are trying to drive platform LTV higher by driving mix shift to higher LTV plans. That is Max. We see also, you know, there is a lot of upgrades. Part of the Q1 outperformance was driven by the fact that Super subscribers were converting up to Max subscribers. That is what I said to the answer to another question, which was showing our current users, free and paid, the right plan at the right time to get to the right LTV. We feel really good about the incrementality and the overall platform LTV increase we are seeing from Max.

[Andrew Boone, Managing Director at Citizens JMP]

Thank you.

[Moderator]

Our next question will come from Mark Mahaney with Evercore ISI. Please unmute your audio, video, and ask your question.

[Mark Mahaney, Senior Managing Director at Evercore ISI]

Okay. Thank you. I may have missed this, but I know you disclosed the Max penetration, I guess, at 7%. Did you provide an update on Math and Music adoption? You talked a little bit, Luis, I think about pricing for Super. You know, I think your logic is kind of, I do not think you have changed pricing in Super in quite some time. As you improve the product and you improve the functionality, make it better and better, that you warrant, you create greater value so that you can, you know, potentially ask people to pay more for it. I am going to say a long way of answering. You know, are you thinking about raising prices kind of across the board on Super?

[Mark Mahaney, Senior Managing Director at Evercore ISI]

What would be the key factors that would make you decide to do that now versus, you know, never doing it or doing it next year? Thank you.

[Luis von Ahn, CEO at Duolingo]

Thank you, Mark. You know, in terms of adoption for math and music, there's no update from last time that we talked about it, I mean, which we said we had about 3 million daily active users learning either math or music. It's higher now. It's growing. And math and music are growing faster than language learning. But compared to language learning, they're still small. Now in terms of prices, we're, you know, we're just always testing different things. At the moment, we're testing prices in different countries and everything. My sense is there will be increases, but I don't know what the A/B test will tell us. Generally, we're just going to be data-driven on this.

[Mark Mahaney, Senior Managing Director at Evercore ISI]

Thank you.

[Moderator]

Our next question will come from John Colantuoni with Jefferies. Please unmute your audio, video, and ask your question.

[John Colantuoni, Analyst at Jefferies]

Great. Thanks for taking my questions. First, I wanted to come back to the topic of incrementality of Max. Can you give us a sense for what portion of recent Max subscribers are new to Duolingo and what portion are intermediate English learners, just to give us a sense for that incrementality? Second, turning to gross margins for Max, you'd originally characterized the subscription tier as dilutive to gross margin, but accretive to gross profit dollars. Has that changed as more cost-effective AI models have been released since you first made those comments? Thanks.

[Matthew Skaruppa, CFO at Duolingo]

Yeah. Yeah. So we're seeing, like I mentioned to Andrew, you know, we're seeing good incrementality. We like the increase in platform LTV from Max. A lot of that comes from the fact that a lot of new-to-the-platform or new-to-pay subscribers are choosing Max for the first time. We are also seeing a relatively high proportion of folks upgrading into Max. So of total Max subscribers, a good chunk of those are coming from folks who currently are paying us and then start paying us more. In general, the bookings incrementality of Max is attractive. You know, we like how that's trending. In terms of the gross margin for Max, nothing that you mentioned has changed. It's still the same lower gross margin %, higher gross profit dollars. That will change over time as two things happen.

[Matthew Skaruppa, CFO at Duolingo]

One, as the price of the generative AI used for Video Call, for example, comes down. We saw in Q1 new models released with lower pricing. We are also going to run optimizations in the back half of the year. We would expect, you know, the gross margin of Max to increase. Again, the goal of Max is right now to drive incremental subscriptions and bookings and LTV and still make a really attractive gross profit dollar return. We are on track, like we mentioned on the last call, to do that better and better throughout the course of the year.

[John Colantuoni, Analyst at Jefferies]

Thanks so much.

[Moderator]

Our next question will come from Ross Sandler with Barclays. Please unmute your audio, video, and ask your question.

[Ross Sandler, Analyst at Barclays]

Hey, guys. I wanted to ask a question sort of for Matt Skaruppa, but maybe for Luis, because we might need a PhD to answer this. Yesterday, Apple was finally dealt a fairly definitive blow on the injunction with Epic around, like, high-quality developers like Fortnite or Duolingo redirecting users to pay for subscriptions off the App Store billing. It seems like you will not be discriminated against if you do that now. I know 60% of bookings come from in-app payments, I think, is what it says in your filing. Luis, have you guys looked at testing the flow of directing people to the web? Matt, what percent of COGS does this represent? Where do you guys see this going? Is this an opportunity to drive a little bit of leverage?

[Luis von Ahn, CEO at Duolingo]

Yeah. I mean, first of all, this ruling is brand new. You know, obviously, we saw it. You know, the App Store, both Apple and Google have been great partners to us. You know, one of the things that they really help with is just ease of payment. I mean, people's credit card is already in there, and it's usually just kind of like a double-click that you have to do when you pay. That is great, and that has really helped us. My sense is that if we were to try to send people to the web, you know, we would not have to pay Apple or Google, but we would see slightly fewer people actually converting because there is more friction. We are obviously going to test something here, given the ruling. We are obviously going to test something, and we will see what happens.

[Luis von Ahn, CEO at Duolingo]

At the moment, there's no--I can't give you results. It's hard to know exactly how much this will help. It may help, but it's hard to know by how much.

[Matthew Skaruppa, CFO at Duolingo]

Yeah. And then on the gross margin on the COGS side, Ross, I mean, well over a majority of our COGS are payments to payment providers. To the extent that you would take a chunk out of those, it would be definitely accretive to gross margins. As Luis said, it is early days for us, and we are going to run A/B tests and green-light any change we make. It would happen over time. You know, we would just have to wait and see. It certainly seems like it is, you know, potential optionality. Again, it is not something that we run experiments on, given the recency of the news.

[Matthew Skaruppa, CFO at Duolingo]

We would be foolish not to test this.

[Ross Sandler, Analyst at Barclays]

Thanks.

[Moderator]

Our next question comes from Shweta Khajuria with Wolfe Research. Please unmute your audio, video, and ask your question.

[Shweta Khajuria, Managing Director at Wolfe Research]

Hello. Thanks for taking my question. Luis, I have one for you. What is your vision for the Video Call feature? As it evolves over the next one, two, three years, what are you working towards? What's a good, not end state, but close to an end state solution look like?

[Luis von Ahn, CEO at Duolingo]

Yeah. I mean, for Video Call, the main thing we want is to be able to get you to practice conversation. That's a very important part of language learning. The more time we get people to spend on practicing conversation, the better they'll get at the language that they're learning. We know that. What we want to do is just get people to spend more time on it. How do we do that? By making it a lot more engaging and by making it a lot snappier. For example, right now, there's still a little bit of latency between when you say something and when Lily responds. We need to decrease that. It is still the case that, you know, sometimes she cuts you off a little too soon.

[Luis von Ahn, CEO at Duolingo]

We need to get better at—she needs to get better at knowing when the conversation has faded out. Humans are actually really good at basically saying, "I now know you're not so interested in talking to me, so I'm just going to leave." Humans are very good at that. Lily's not very good at that. You know, there's that type of stuff we got to get better at. You know, we're going to have a whole world for her where she's going to be able to, you know, change her background immediately and start pretending that she's like, you know, your taxi driver or something. Really, the idea is to practice as much language as possible and to increase engagement.

[Luis von Ahn, CEO at Duolingo]

The more we increase the engagement, the more people will tell their friends that not only to use Duolingo, but if they are a Duolingo user, they should get Duolingo Max to be able to practice with Lily.

[Moderator]

Thanks, Luis. I'm showing no further questions. This concludes the question and answer session of the call. I would now like to turn the call back to the host for closing remarks.

[Luis von Ahn, CEO at Duolingo]

Just want to say thank you. Thank you for the great questions. More importantly, thank you to our excellent Duolingo employees for yet another great quarter. The team is firing on all cylinders. Thank you, everybody.

Participants

Executives

• Deborah Belevan, VP of Investor Relations
• Luis von Ahn, CEO
• Matthew Skaruppa, CFO

Analysts

• Nathan Feather, Analyst at Morgan Stanley
• Andrew Boone, Managing Director at Citizens JMP
• Ryan MacDonald, Analyst at Needham
• Edison Kai, Analyst at Citi
• Justin Patterson, Analyst at KeyBanc
• Ralph Schackart, Analyst at William Blair
• Bryan Smilek, Analyst at JPMorgan
• Mark Mahaney, Senior Managing Director at Evercore ISI
• Arvind Ramnani, Analyst at Piper Sandler
• Moderator
• John Colantuoni, Analyst at Jefferies
• Shweta Khajuria, Managing Director at Wolfe Research
• Ross Sandler, Analyst at Barclays
• Chris Kuntarich, Analyst at UBS
• Curtis Nagle, Analyst at Bank of America
• Alex Sklar, Analyst at Raymond James